IMF Staff Completes 2016 Article IV Mission to Argentina
IMF News, September 29, 2016
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- Published: September 29, 2016
Mission overview
- Press Release No. 16/438
- An International Monetary Fund (IMF) staff team led by Mr. Roberto Cardarelli visited Argentina from September 19–29, 2016 to undertake the first Article IV Consultation since 2006.
- The mission met with senior officials as well as a range of representatives of the private sector and academics.
- End-of-Mission press releases convey preliminary findings; the views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.
- Mr. Roberto Cardarelli stated that “Upon taking office in December last year, Argentina’s new government faced pervasive macroeconomic imbalances, microeconomic distortions, and a weakened institutional framework.”
Key findings
- Pre-existing conditions on arrival of the new government:
- Pervasive macroeconomic imbalances, microeconomic distortions, and a weakened institutional framework.
- Consumption levels were unsustainably high.
- Investment reached historically low levels.
- Large fiscal deficits were financed by money creation, which lead to high inflation.
- Distortions at the micro level included an extensive network of administrative controls (for example, trade barriers, foreign exchange restrictions, and price controls) and a business environment that eroded competitiveness and undermined medium-term growth.
- Progress made by the authorities:
- “The peso is now market determined and exchange controls have been eliminated.”
- “The increase in utility tariffs has brought prices more in line with underlying costs.”
- “The settlement with creditors has allowed a return to international capital markets by both the private and public sector.”
- Medium-term fiscal and inflation targets have been announced in conjunction with a transition toward a modern system of inflation targeting.
- “The national statistics agency is being rebuilt, allowing for the publication of improved and credible data on inflation, trade, the labor market, and output.”
- Near-term economic impact:
- The reversal of serious imbalances and distortions, while necessary for robust future growth, “unavoidably had an adverse near-term impact on the Argentine economy.”
- Central focus of discussions: authorities’ measures to restore sustained and equitable growth, boost job creation, and protect the more vulnerable segments of society.
Policy recommendations and priorities
- Commendations and objectives:
- “The government should be commended for its clear commitment to bring inflation to single digit levels and to reduce the fiscal deficit.”
- Fiscal policy and social considerations:
- The pace and composition of fiscal adjustment and the speed of disinflation “will need to be sensitive to the impact on growth, jobs, and on the most vulnerable segments of the Argentine population.”
- A medium-term fiscal plan that guides expectations would be valuable in this adjustment.
- Strengthening public expenditure management, further improving governance, and increasing the efficiency of public spending would create space for a much needed reduction of the tax burden while continuing reducing the fiscal imbalances.
- Structural reforms for growth:
- “Strong, sustained, and equitable growth will require the implementation of an ambitious agenda of supply-side reforms.”
- Such reforms are expected to create an environment more conducive to private investment and generate medium-term dividends: more and better jobs, and a steady improvement in living standards.
Stakeholder dialogue and next steps
- The mission thanked the authorities for frank and open dialogue.
- It is expected that the IMF’s Executive Board will consider the 2016 Article IV consultation at the end of November.
Press Release No. 16/438 — September 29, 2016.